Bad news. And more bad news today.

Yet my suspicion is that stocks wouldn’t be down so much today, June 23, if they hadn’t been up so much on June 21. So far, today’s 1.1% decline in the Standard & Poor’s 500 (as of 1 p.m. New York time) amounts to profit taking on the June 21 move up to 1296 on the index. The current 1273 on the S&P is still above the 1265 low of June 15 and above the critical 200-day moving average at 1263.

A 1% drop on today’s list of bad news is, well, actually rather modest. U.S. initial claims for unemployment for the week ended June 18 climbed by 9,000. European Central Bank President Jean-Claude Trichet said that the Greek debt crisis threatens banks.  The euro fell and the dollar rose—which helped push oil prices below $90 a barrel for the first time since February. Oil prices were headed lower anyway after the International Energy Agency announced that it would release 60 million barrels of oil from its emergency stockpile to make up for production lost to the Libyan civil war.

I’m watching to see if the 1262-1265 level holds again. In which case stocks are in a narrow trading range as everybody waits for some “solution” to the Greek debt crisis.

For U.S. stocks the long-term upward trend is in danger–thanks to worries about the euro

So far—and I mean “so far”—the major U.S. stock market indexes remain in their long-term upward trends. But we’re getting close, the technicians say, to levels that would put the continuation of that uptrend in doubt.

For the Dow Jones Industrial Average, which drooped to 12356 at the close today, May 24, the key level for support is 12100, wrote Arthur Hill on May 23 on StockCharts.com. That level represents the low for April and the trend line that stretches back to last November. A close solidly below that number would mark a new level of risk in the U.S. stock market.

One thing that troubles me about the U.S. market’s ability to hold that level and keep that upward trend line intact is the breakdown of core European stock markets. The Italian and Spanish markets have both broken support but those declines aren’t what worry me. It’s the breakdown in the Dutch market where, Hill notes, the Dow Jones Netherlands Index broke below its March low recently. The Dutch economy has been one of the stronger in Europe.

The German and French stock markets—the keys to Europe’s financial markets—are also looking a little shaky. Read more

It’s a new quarter.

Do we know any more about the trend in the stock market and the economy than we did at the start of last quarter

Well, actually a little bit. I don’t think we’re at “Bet the farm” certainty, but figuring out the trend isn’t quite as confounding as it was three months ago.

Partly that’s because three months ago the market and economy were truly baffling. When the bar is so low, “Mildly conflicted confusion” is a big improvement.

But partly it is because the trends in the financial markets and the economy actually seem reasonably clear as we head into the fourth quarter.

Let me start with a quick survey of the bad old days of July 1 and then move into my list of what we know and what we don’t as we investors try to figure out how to navigate the fourth quarter of 2010. And because I like crawling out on a limb and then taking my Husqvarna to it, I’ll give you my best guess-timate on how certain it is that we really know what it is we think we know.

Remember where the market stood on July 1? Stocks had been caught in a pretty steady downdraft since the April 23 high at 1217 on the Standard & Poor’s 500 index. The market would, in fact bottom, on July 2 at 1023, then rally to a high of 1128 on August 9 and then tumble again to a low of 1047 on August 26.

For much of the quarter it looked like the rally that began in March 2009 was over, kaput, stick-a-fork-in-it done. With the July and August rally ending on August 9 at a high so much lower than the April high at 1217 and with the market seemingly determined to head for an August low below the 1023 of July 2, it sure looked like we were headed for one of those lower high/lower low patterns that tells you even worse stuff is on the way.

But instead the market pulled up way short of setting a lower low in August and then proceeded in September to move above the August high at 1128. And suddenly what looked like a high probability of a move from a bull to a bear market looks now like it was just a correction.

Which brings us up to the end of the third quarter. And my survey of what we think we know for the fourth quarter. Read more

The pause that tells us where this rally is headed

Now we test this rally.

The upward move in the market stalled yesterday, July 28, at technical resistance for the NASDAQ Composite index, which had led the advance.

Nothing unexpected there. The NASDAQ Composite is up 10% in just 18 days. That’s enough to convince some investors to take profits. A technical analyst would call the market “overbought.”

It’s what happens from here that counts, that determines whether we’ve had a great bounce, a very quick but decent summer rally, or are on the verge of something more.

What makes deciding how this market will break now so hard is that stocks have been so volatile recently.  Arthur Hill of Stockcharts.com counts six moves in the NASDAQ Composite and NYSE Index of 8% or more since the April high. (That’s three moves of 8% or more up and three down.) That’s an average of one 8% move every 2.66 weeks.

Semiconductor stocks, which have helped lead the most recent upward move, show the same volatility (and then some) with six 10% moves since late April.

On that pattern investors can expect that any pullback here would be quick and substantial. (Like 8% or more, perhaps.) Read more